Under what circumstances is it important to adjust the Capital Asset Pricing Model for firm size? Why?

Question

Quizplus · Accepted Answer

The Answer is Small firms tend to be subject to higher default risk and are often less liquid than larger firms. Studies show that the size of a firm is a good proxy for such factors. Since the CAPM reflects only non-diversifiable or market-related risk, it should be adjusted to reflect these factors.

Under What Circumstances Is It Important to Adjust the Capital